Friday, August 13, 2010

Triple convergence of floods, Ramzan, and global wheat crisis threatens food security in Pakistan

The devastating floods in Pakistan, which have killed over 1,600 and displaced nearly 14 million individuals, have also adversely impacted the food supply chains. Nearly 17 million acres of cultivated cropland has been lost to floods. The loss of livestock may also be in millions. At one point, nearly one-third of Pakistan's landmass was affected by the devastating floods.
The loss of crops from floods alone can cause huge spikes in the price of necessary food items given the uncertainty about the supply of grains and livestock. At the same time, almost 75% of those affected by floods are the ones who rely on agriculture for sustenance. Even after the flood waters recede, it will take months, if not more, to resettle the internally displaced farm workers on the land they once tilled.
Compounding the devastating impact of floods are two additional factors, i.e., the start of Ramzan in Pakistan, which has always been accompanied with unexplained inflation, and the global wheat shortage that has caused the price of wheat to increase by 90% since June 2010.
The triple convergence of floods, Ramzan, and global wheat crisis suggests that low- and mid-income households in Pakistan may face huge price increases for staple foods. Already, the food markets in urban centres are reporting 100% to 200% increase in the price of food items over the pre-flood levels. Onions are selling for 80 rupees per kg and tomatoes are averaging around 120 rupees per kg in Islamabad alone, which has been spared by the flood waters.
Item Price after floods (Rupees) Price in week preceding floods (Rupees)
Tomatoes (kg) 120 40
Shimla Mirch (kg) 80 40
Lady finger (kg) 70 35
Green chilli (kg) 80 40
Lemon (kg) 80 40
Tori (kg) 80 40
Aubergine (kg) 60 30
Arvi (kg) 70 40
Bitter gourd (kg) 70 40
Even without the flood-related inflation in food prices, 50% Pakistanis were considered food insecure. The triple convergence causing further price hikes may render a much larger proportion of Pakistanis unable to secure food at affordable prices.
While the floods may be a new phenomenon in Pakistan, price hikes during Ramzan have been the norm in not just Pakistan, but in most Muslim majority countries, such as Indonesia and Egypt. In the past few years, flour, sugar, and other staple foods initially disappeared from markets and later emerged at inflated prices during Ramzan. This happens even after the governments' explicit promises to check hoarding and price inflation.
Consider the graph below that highlights the increase in consumer prices across 71 markets in Pakistan since 2001. The graph is derived from the Consumer Price Index maintained by the Federal bureau of Statistics in Islamabad. The index is based on a basket of goods and services consumed by an average household in Pakistan. This includes food expenses; shelter, fuel, and transportation costs; and recreation, education, and healthcare expenses.

Since July 2001, prices have more than doubled in Pakistan, as is evidenced by 128% increase in prices in July 2010 over July 2001. Since the graph represents national average prices, certain urban centres would have experienced even a greater level of price hikes. When we tracked wheat and rice prices across various urban centres in Pakistan, the spatial disparities became obvious that show certain cities in Pakistan are more expensive than others.
Consider the graphs below that show that highest rice prices have been recorded in Islamabad, whereas the lowest rice prices are observed in Sargodha. Wheat, on the other hand, was found to be most expensive in Karachi and Hyderabad and much cheaper in central Punjab. Also note that the graphs offer data for July 2010, September 2009, and July 2009 for both wheat and rice. Wheat prices are shown the highest across Pakistan in September 2009, which coincided with Ramzan, whereas rice, with the exception of prices in Balochistan, did not experience excessive inflation during Ramzan in 2009.

While the above graphs track only wheat and rice prices and thus offers a partial picture, one needs to see the change in consumer prices for a larger basket of goods and services to determine how prices change during Ramzan.
I have plotted an interactive graph below that shows the change in consumer prices from July 2002 to July 2010 over a 12-month period, which is also known as the annual inflation in prices. The obvious peak during August to October 2008 in the graph shows that consumer prices increased by almost 25% on a year-by-year basis, which was the worst consumer price inflation observed in Pakistan since 2002. This period coincided with Ramzan in 2008. However, 2008 is not an exception. Since 2002 the highest price inflation has mostly been observed during the months of October and November, which coincided with Ramzan.

If the previous trends in price hikes during Ramzan continue and are further exacerbated by the loss of livestock and crops due to floods, one may see a sustained price inflation of greater than 25% for the months to come in Pakistan. As noted above, and at least in the short run, the price of staples after the floods has already doubled.
The third force behind inflation is the global wheat crisis, which has caused the wheat prices to increase by 90% since June 2010.
The drought in Russia has caused Russia to ban all wheat exports. While Russia accounts for only 11% of the global wheat supply, the export ban sent shockwaves through the commodity prices. Compounding this even further is the loss of wheat crop in China and India due to monsoon rains. The shocking figures released earlier this month suggest that 17.8 million metric tons of inadequately stored wheat, which accounts for 30% of India's wheat supply and can feed 210 million Indians for a year, is rotting because of exposure to rains. Experts argue that India needs to spend at least $1.7 billion to develop warehouses for adequate storage of grains.
While the price of wheat in the global markets is much lower than $13 per bushel, which was observed at the height of global food price crisis in 2008, the short-run hike in wheat prices is certainly becoming a global source of concern even when bumper wheat crops in the United States, Canada, and Australia are being highlighted to calm the markets.
The triple convergence of floods, Ramzan, and global wheat crisis could spell disaster for Pakistan that has suddenly become food insecure while being armed with nuclear weapons. The excessive spending on defense over the past four decades to secure its borders has inadvertently left Pakistan food insecure. The food-starved, yet nuclear armed North Korea, should serve as an example for the policymakers in Pakistan who have preferred spending on ammunition than on grains. If the spending priorities are not changed from military security to food security, there will be not much left within Pakistan to defend at its borders.

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